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Entrep Q2 - Lesson 2

Entrep Shs Lesson 2 for quarter2

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Goc-ong JM
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29 views50 pages

Entrep Q2 - Lesson 2

Entrep Shs Lesson 2 for quarter2

Uploaded by

Goc-ong JM
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Entrepreneurship

LESSON 3:
Forecasting Revenues,
Costs, and Profit
LESSON OBJECTIVES:
1. Define revenue and cost;
2. Identify factors in forecasting
revenues and costs of the
business; and
3. Compute for profits.
INTRODUCTION
Anything you plan is generally based on
assumption of something that might happen
in your business in the future. The more
accurate these assumptions will be, the
better the plan it is. If an entrepreneur
knows what happened in the past and why,
or have insight into what may occur next, he
can then predict what is likely to happen in
the future. That is what we call business
FORECASTING
is a method to predict the future, an
estimate or prediction of future
developments in business such as sales,
expenditures, and profits.
Entrepreneurship

2 TYPES OF
FORECASTING
1. Judgement Forecasting
 using your own intuition
and experience as the
business owners set a
general pattern of the
income and expenses for
the year.
1. Quantitative Forecasting
 is more scientific because
it uses actual and past
income and expense data
from your own business or
other businesses in your
industry as a basis for
tracking trends and
predicting changes.
REVENUE
 is the amount of money that a company receives
during a specific period, including discounts and
deductions for returned merchandise.
 is calculated by multiplying the price at which
goods or services are sold by the number of units or
amount sold.
 other terms related to revenue include Sales and
Service Income.
 Sales is used especially when the nature of business
is merchandising or retailing, while Service Income
is used to record revenues earned by rendering
COST

refers to the purchase price of the product


including the total outlay required in
producing it.
START UP COST
 The start-up capital is the amount of
money that is needed to buy facilities and
equipment, to register and license the
business and get the necessary certificates.
 Working capital includes the costs of raw
materials, packaging, staff training, product
promotion, etc. that have to be made before
the business begins to generate income from
sales of the product.
OPERATING COST
 here are two types of operating (or
production) costs namely – fixed costs
and variable costs.
 Those expenses that have to be paid
even if no production takes place are
called fixed costs.
 On the other hand, those expenses that
depend on the amount of production are
GROSS PROFIT(or GROSS
 is the difference
LOSS) between the expected
income and the total operating costs over
the first year, including any loan
repayments.

 income is therefore calculated as

Income = Selling price per unit x Number


of units sold
Entrepreneurship

HOW TO
FORECAST A REVENUE?
1. Choose between Judgement Forecasting or
Quantitative Forecasting;

2. Start with last year’s revenue and cost


statements for a basis of prediction;

3. Consider any changes in personnel, products,


pricing, competition and other factors which
could impact your future revenue and cost;
4. Calculated anticipated revenue;

5. Separate individual income sources to get a


clear picture of potential ups and downs from
each revenue and cost stream; and

6. Constantly review and update the forecast to


reflect changes in your business.
Entrepreneurship

Factors in Forecasting
Revenues and
Costs of the Business
1. The economic condition of the
 When the economy
countrygrows, its growth is
experienced by the consumers.
 Consumers are more likely to buy
products and services.
 A healthy economy makes good
business.
2. The competing businesses or
 Observe how your competitors are doing
competitors
business.
 This will give you a benchmark on how
much products you need to stock in order
to cope up with customer’s demand.
 This will also give you a better estimate as
to how much market share is available for
you to exploit.
3.The changes happening in the
community
 Customer’s demographic profile, lifestyle
and buying behaviors give the entrepreneur
a better perspective in the changes in the
community.

 Entrepreneurs must always be keen in


adapting these changes in order to thrive in
the marketplace.
5. The internal aspect of the
business.
 Another factor that affects forecasting
costs and revenues is the business itself.
Plant capacity often plays a crucial role in
forecasting.
Entrepreneurship

Forecast the
Revenues of the Business
EXAMPLE
Example:
Mr. JB recently opened his dream business and named it
Just Wear Online Selling Business, which specializes
online ready to wear clothes for teens and young adults.
Based on his initial interview among online selling
businesses, the average number of t-shirts sold
everyday is 15 and the average pair of fashion shorts
sold everyday is 10 pieces. From the information
gathered, Mr. JB projected the revenue of his Just Wear
Online Selling Business. He gets his supplies from a local
RTW dealer in the city. The cost per piece of t-shirt is
100.00, while a pair of fashion shorts costs 250.00 per
piece. Then, he adds 50 percent mark up to every piece
Take Note:
Mark up refers to the amount added to the
cost to come up with the selling price. The
formula for getting the mark-up price is as
follows:

Mark Up Price = (Cost x Desired Mark up


Percentage)

Mark Up for T-shirt = (100.00 x 0.50)

Mark Up for T-shirt = 50.00


In calculating the selling price, the
formula is as follows:

Selling Price = Cost + Mark up

Selling Price = 100.00 + 50.00

Selling Price for T-shirt = 150.00


Table 1. shows the Projected Daily Revenue of
Just Wear Online Selling Business. Computations
regarding the projected revenue are presented
in upper case A, B, C,D and E.
Table 1. Projected Daily Revenue Just Wear Online
Selling Business
Entrepreneurship

Forecast the
Costs to
be Incurred of the Business
Cost of Goods Sold / Cost of
 Refers to theSales
amount of merchandise or goods
sold by the business for a given period of time.

 This is computed by adding the Beginning


Inventory to the Net Amount of Purchases to
arrive with.

 Cost of Goods Available for Sale from which the


Merchandise inventory, End is subtracted.
Merchandise Inventory, beg.
 Refers to goods and merchandise at the
beginning of the business operation or
accounting period.
Purchases
 refer to the merchandise or goods purchased for
resale. .
Freight-in
 refers to transportation cost incurred by the
buyer in
transferring the merchandise from the seller..
Let’s calculate the Cost of Goods Sold of Just Wear Online
Selling Business for the month of January.

• Cost of goods is calculated by simply multiplying the number


of items sold every month (15 t-shirts per day x 30 days in
a month = 450 pieces and 10 pairs of shorts per day x
30 days in a month = 300 pieces) to its corresponding cost
per unit (100.00 pesos for every t-shirt and 250.00 for
every pair of shorts). The cost of transporting the goods
from the supplier to the seller or Freight-in is then be added to
Net Cost of Purchase.
• There is no Merchandise Inventory, beginning and
Merchandise Inventory, ending because Just Wear items
purchased online from the supplier are then sold as soon as
they arrived.
Table 3. shows the Projected Cost of Goods Sold
(Monthly) of Just Wear Online Selling Business.
Computations regarding the Projected Cost of
Goods Sold (Monthly) are presented in upper
case A, D, F, and J.
Table 4. shows how Freight-in is calculated. It is
assumed that an average payment of transporting
the merchandise to the buyer is 270.00 pesos for
every 12 items delivered the
buyer. Since, the average order is 750 pieces every
month, he pays:

750 pcs. / 12 pcs. = 63


63 x 270.00 = 17, 010.00
Let us now substitute the values from tables 2 and 3.
Since, there is no Merchandise Inventory, beginning
and Merchandise Inventory, ending, let’s add Cost of
Purchases and Freight-in to get the Cost of Goods
Sold.
Now that the Cost of Goods Sold is calculated
already, let us now identify expenses incurred in
the business operation. Operating expenses such
as Internet connection, Utilities Expense (Water
and Electricity), Rent Expense and Miscellaneous
expense are important to keep the business
operating. These expenses are part of the total
costs incurred in its day to-day operation and are
paid every end of the month. The assumed
operating expenses and its amounts are listed
below:
Now that the total operating expenses are calculated already, we can
now solve the Income Statement to get the Net Profit (Net Loss) of
Just Wear Online Selling Business.
Table 5. shows the projected monthly revenues,
costs, and income covering the first year operation
of Just Wear Online Selling Business
Important Assumptions:

1. For the month of January, the projected revenue -180,


000.00; cost of goods sold 137, 010.00, operating
expenses – 8, 999.00;

2. For the months of February and March, the projected


revenue, cost of goods sold, and operating expenses have
an increase of 10% from the previous month;

3. For the months of April to August, it has the same


projected revenue, cost of goods sold and operating
expenses.
Important Assumptions:

. 4. For the months of September to October, it has a loss


of 5% from previous revenue and cost of goods sold and
operating expenses have the same amounts from the
previous month;

5. For the month of November, it has an increase of 10%


from previous revenue, 5% increase of cost of goods sold
and operating expenses; and
6. For the month of December, it has 15% increase from
the previous revenue, 5% increase of cost of goods sold
and operating expenses.

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